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Financial crimes around the world

Financial crimes around the world


1)        Introduction

When you think about the word “crime”, what does it usually remind you of? Murder, theft or assaults? But today, we focus on the topic of financial crimes. This article will be depicting the importance of knowing the types of financial crimes being done around the world, followed by the solutions.


So what is a financial crime? There isn’t a definite or distinguishable definition set by the studies but generally speaking, we define financial crime as “crimes that used financial companies or board of directors of the companies as intermediaries that brought great disorder in the financial market sectors” and such financial crimes talked about here should be fraudulent accounting or manipulating stock quotations.


Indeed all the financial supervisory services around the world are putting a lot of effort on prevention of financial crimes but among them, United Kingdom seems to be putting extra effort than the others. United Kingdom has set one of the 4 main goals of FSA (Financial Services Authority) as downsizing the rate of financial crimes in U.K. In U.K’s capital markets act, the law strictly elucidates that if a financial crime is related to the following three deeds, than the action is considered as a financial crime.

The followings are

  1. Financial fraud or dishonesty
  2. Making an improper use of information related to the financial sectors
  3. Handling of the proceed derived from the financial crimes


2)        Cases (Foreign and Korea)

  1. International Cases

On the day of February 2005, one of the world’s most renowned investment banks, Barings went bankrupt. It was all because of Nick Leeson. Nick Leeson felt strong interest in the derivative securities which eventually led him to join Barings. In the year of 1993, Leeson alone earned 20% of Baring’s revenue which earned him considerable credit from the board of directors (BOD). With more power in his hand, in the year of 1995, he gambled on Japan’s Nikkei Stock Average Index. However, his sole decision left 1.3 billion dollars loss behind because of an earthquake in Kobe, Japan and the change of American bank-rate policy. Leeson was sentenced 6 years of imprisonment under the charge of fabrication of financial documents and frauds. Finally, the 232 years of Barings Bank was sold at a dollar to ING Corporation.

The financial experts indicate several problems from the Barings’ case.

1)      Failure of internal control

2)      Conflict of segregating the function duties

3)      Failure in regulating an excessive position

4)      Lack of cognition of the board of directors


  1. Domestic Cases (Korea)

On November 11, 2010, directors from Deutsche Bank’s Hong Kong and Korea branches have plotted conspiracy to earn unfair profits. This incident is called the “Option Shock” or “11.11 Option Shock”. So how did they earn excessive profits? A director from Korean branch and three directors from the Hong Kong branch, under mutual consent, have agreed to sell the securities holdings right before the closing session of the trading. As a result, 2.79% of price index of stocks dropped temporarily. This is not the end; the Hong Kong branch purchased put-options and exerted these put-options to earn 448 million won.


The situation of Busan Savings Bank

In February 2011, 15 Korean savings banks including the Busan Savings Bank underwent suspension of business. Since this report is focusing on financial crimes, let us take a look at the financial crimes done by the savings bank, especially the case of Busan Savings Bank.

  1. Evading the bounds of credit grants and investor’s loan regulation by establishing SPCs (special purpose companies)

–          The bank has established a number of SPCs, by borrowing the names of their acquaintances and employees. These SPC with its subsidiaries, have granted loan of 4.6 trillion won.

  1. Establishment and expenditure of watered stock.

–          The bank has spent 130~150 million won annually under the pretext of operating expenses and wages of BODs affiliated with the SPC.

  1. They have concentrated on 120 development and constructional industry-based businesses rather than focusing on their inherent banking business.

–          Have invested 4300 million won building a new airport in Cambodia

–          Have invested 3000 million won in a resort and shipbuilding industry.

–          Illegally loaned 1200 million won to a charnel house without a proper business license.


3)        Conclusion / Evaluation

There are numerous other cases related to financial crimes such as the account book fabrication of Enron. But even from the cases mentioned before, you probably have already felt the importance of internal control and supervisory regulation of the banks. In order to prevent these crimes, we need to have a better understanding and recognition to detect loopholes and weaknesses of the derivative securitized products and the market. The financial supervisory agencies around the world should become more vigilant.